Tuesday, 27 March 2012

BATS Falls Flat

BATS Global Markets, the Kansas based alternative trading platform planned its IPO for last Friday. BATS is the third largest trading platform in the US behind the NASDAQ Euronext and NYSE OMX Group accounting for 10.3% of equity trading in the US. However, their IPO went horribly wrong.

Due to a software bug, BATS internal systems failed which affected trades of stocks with tickers ranging from A to BF. Investors, realizing what was going on decided to sell their allotment of BATS shares, further placing downward pressure on the new stock. Within a span of 3 seconds, the stock fell from trading at $15.25 to 3 cents. BATS thought about restarting their IPO in the afternoon, but feared it would fall below $16 threshold which is lower bound of their prospective offering. Instead they decided against it since investors could sue the company for not adequately marketing the risks associated with the firm and its business if the stock tanked again.

The good news out of the whole fiasco: the checks put in place after the Flash Crash are working. Apple’s shares fell 9% triggering a circuit breaker to halt in its trading.

As a result of the botched IPO, bonuses related to the float would not be paid out. This could have devastating consequences for the firm as it tries to retain talent. The firm currently employs only 150 people, substantially less than industry rivals. Nevertheless, BATS is lucky to have the chance for a redo which is not always possible on Wall Street.